Markets

CMA greenlights issuance of exchange traded fund

NSE chief executive Geoffrey Odundo. PHOTO | SALATON NJAU
NSE chief executive Geoffrey Odundo. FILE PHOTO | SALATON NJAU 

The Capital Markets Authority (CMA) has granted approval to South African firm NewGold Issuer (RF) Ltd to issue a gold backed exchange traded fund (ETF) at the Nairobi Securities Exchange.

This issuance is the first under the new class of products that the exchange has been planning to introduce as it looks to add to the traditional stocks and bonds options for investors.

An ETF is a fund into which investors contribute money which goes into buying securities that compose an index or a defined group of securities — such as banking or insurance stocks — put together.

The underlying asset can also be a commodity, such as gold.

The investors will not own the asset directly, but will rather hold shares in the ETF whose value goes up or down in tandem with the value of the underlying asset.

“NewGold Issuer (RF) Limited will issue and list 400,000 gold bullion debentures as a secondary listing on the NSE main investment market segment. The value of NewGold ETF tracks the price of gold,” said the CMA in a statement.

“The listing price of the ETF will be determined on the listing date based on the real time cash market values of the gold price and the real time price of the Kenya shilling.”

NSE chief executive officer Geoffrey Odundo had announced last November that the exchange would issue an ETF this year, although the expectation was that it would open with an index linked fund.

The rules for trading the ETFS were approved in the latter part of last year. Stockbrokers have also been training staff and building capacity in readiness for the new products.

Barclays Bank for instance launched its stock brokerage subsidiary, Barclays Financial Services Ltd (BFSL) last October with an eye on the market for ETFs and other derivatives, saying it plans to draw from the parent firm’s experience in the South African market where such products are actively traded.